Populism raises sentiment

The BSE-CMIE-UMich consumer sentiments indices retreated a bit during the week ended April 16 but, they continued to maintain most of the gains made in the preceding few weeks.

The Index of Consumer Sentiments declined by 2.35 per cent during the week of April 16 after having gained 18 per cent during the preceding five weeks. And so, over the past six weeks, sentiments have risen by a good 15 per cent.

The index started gaining from the second week of March -- the week of the announcement of state elections. The gain was almost entirely in rural India. During the five weeks ended April 9, when the Index of Consumer Sentiments increased by 18 per cent, the rural index increased by a massive 28 per cent. In sharp contrast, the urban index increased by just one per cent. It is likely that the massive farm loan waiver in Uttar Pradesh, the completion of the last tranche of loan waivers in Telangana and the pressures to waive loans in Punjab and Maharashtra contributed to the jump in rural consumer sentiments.

Government interventions continued to play a fairly important role in the lives of common people. It is quite likely that these interventions continue to impact consumer sentiments. In the week gone by, the state governments of Madhya Pradesh and neighbouring Chhattisgarh announced that they would ban the consumption of alcohol in their states. Both these states are not known to be big consumers of alcohol like Kerala, for example. Nevertheless, a ban on a consumption item is a big move, and a smart one at that. It provides a big political gain for a small cost.

Earlier, the Supreme Court had ruled that sale of alcohol within 500 metres of a national highway be banned.

Banning of alcohol is likely to be a popular move. It is, apparently, winning Nitish Kumar, the Chief Minister of Bihar, some accolades. Banning of alcohol is not merely a purist's view of social behaviour. It is also a relief to many women at the bottom of the pyramid who suffer irresponsible drinking by over-worked or unemployed men. Popular movements to ban alcohol in the past mostly drew their strength from poor women. And, these bans were opposed mostly by the elite who argued in favour of protecting state revenues and of the apparent futility of the ban. The current government seems to be managing these criticisms much better.

The minister for consumer affairs, food and public distribution suggested that the quantity of food served in restaurants be displayed in the menu cards. The idea is to usher in transparency and to avoid waste. The minister also spoke in favour of removing the service charges on restaurant bills. These measures again, are popular and, they are also sensible. But, the idea was instantly castigated by the elite as controls. Consumers from India's large lower middle classes however, appreciate avoiding wastage, saving on service charges and will always appreciate transparency even if they do not visit restaurants too often.

It is apparent that the government is making statements that make sense to the masses -- mostly rural masses.

Rural sentiments have risen because of the massive farm loan waivers and the promise for more farm loan waivers. Rural sentiments have also gained from the ban on alcohol. Possibly, they have gained from cow vigilantism as well. Urbanites do not gain much from these announcements.

Consumer sentiments in urban India continues to remain low. At just a shade above 94, the urban index of consumer sentiments is six per lower than its level over 15 months ago, during September-December 2015.

Lack of employment possibly continues to hurt urban consumer sentiments. While the unemployment rate is low, it is the low labour participation rate that is hurting more.

Preliminary estimates suggest that the fall in labour participation is steep and the trend continues in urban India. This is not the case in rural India where labour participation is relatively stable.

Trends in consumer sentiments and unemployment in the recent past tell us that sentiments do respond to government announcements. While the government has succeeded in repairing the fall in rural sentiments through the farm loan waiver scheme, it has not been able to address the problem of loss of jobs and the consequent fall in the labour participation rates in urban India. This is a bigger and a more serious problem.

SENTIMENT DECLINES

Sentiment gauge

UNEMPLOYMENT RISES

Unemployment gauge

Business Standard brings you CMIE’s Consumer Sentiments Index and Unemployment Rate, the only weekly estimates of such data. The sample size is bigger than that surveyed by the National Sample Survey Organisation. To read earlier reports on the weekly numbers, click on the dates:

November 21November 28December 4,

Methodology

Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.

The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel